There is specific guidance on arm’s length pricing for financial transactions, business restructuring and cost contribution agreements
While mentioned in passing in prior regulations, there is now specific guidance contained in PMK 172 regarding loan transactions, business restructuring and cost contribution agreements. There is also additional guidance provided for taxpayers in other areas, such as application of the profit split method.
There is new guidance on secondary adjustments
While PMK 172 reiterates that transfer pricing audit adjustments can be subject to penalties, secondary adjustments and VAT adjustments, PMK 172 provides the opportunity for taxpayers to minimize the application of secondary adjustments where cash or cash equivalent transfers are made or where the taxpayer agrees to the adjustment made by the tax auditor during the tax audit process.
Geographical comparability is prioritised
When selecting comparable data, geographical comparability is now prioritised. PMK 172 explicitly states that, assuming consistent levels of comparability, where comparable data is available from multiple jurisdictions then only the comparable data from the same country or jurisdiction as the tested party should be used as comparable. This principle applies irrespective of where the tested party is located.
Comparability adjustments should be made to the comparable data
PMK 172 highlights that where there are differences in comparability between the tested party and the comparable data and reliable adjustments can be made to minimse the impact of these differences then these adjustments should be made to the comparable data.
Single year analysis is the new default with the burden of proof shifted to Taxpayer for the use of multiple year analysis
PMK 172 provides that comparability analysis where profit level indicators are applied should be applied using single year comparable data unless the use of multiple year data improves comparability. The approach in PMK 172 shifts the burden of proof to Taxpayers to support that the use of multiple year data improves comparability as compared to single year data.
The use of ranges to analyse comparable data has been clarified
Clarity has been provided regarding the use of ranges when analysing comparable data and how a tax auditor should use ranges to make adjustments to taxpayers. The use of the full range is explicitly accepted in Indonesia for the first time where there are two comparable data points.
The burden on taxpayers to support service transactions and intangible property transactions has increased
PMK 172 has introduced specific requirements for taxpayers to ‘prove’ services and intangible property transactions. These include, for example, providing proof that the services provided benefit the service recipient or proving the value of intangible property that is licensed. The steps performed by Taxpayers to prove services and intangible property transactions will need to be documented by taxpayers in their Local File meaning that consideration must be given to these requirements before the Local File is prepared.
Domestic corresponding adjustments are now available
PMK 172 has introduced guidance on corresponding adjustments including the process for making corresponding adjustments relating to a transfer pricing adjustment made on a transactions between domestic related parties. The prerequisite to make these adjustments include that the taxpayer subject to the transfer pricing adjustment agrees with the transfer pricing adjustment made and does not challenge the tax assessment at higher levels of appeal.
There is specific guidance on transfer pricing for Permanent Establishments (PEs)
PMK 172 contains specific guidance on transfer pricing considerations for PEs in Indonesia. In particular, PMK 172 contains requirements that a PE provides offshore transactional information to the Indonesian Tax Office (ITO). If this information is not provided, the ITO is empowered to apply the arm’s length principle to adjust the PE.
The interaction between MAPs and domestic controversy process
The time for MAP completion has been extended under PMK 172. PMK 172 provides the opportunity for a Taxpayer to continue to seek resolution of substantive issues through the MAP process until the point that a judicial review decision is issued by the Supreme Court, when the judicial review decision will become the ITA’s position in MAP negotiations.
